.if,jjetm,v*lt:**t 



■ 





SUMMARY OF REPORT 



OF THE 



FEDERAL TRADE COMMISSION 



ON 



SHOE AND LEATHER 
COSTS AND PRICES 



JUNE 10, 1921 



¥%i¥%W 




WASHINGTON 

GOVERNMENT PRINTING OFFICE 

1921 



SUMMARY OF REPORT 



OF THE 



i V 



FEDERAL TRADE COMMISSION 



ON 



SHOE AND LEATHER 
COSTS AND PRICES 



JUNE 10, 1921 




WASHINGTON 

GOVERNMENT PRINTING OFFICE 

1921 






FEDERAL TRADE COMMISSION. 



Huston Thompson, Chairman. 
Nelson B. Gaskill. 
John Gaeland Pollard. 
Victor Murdock, 
John F. Nugent. 

J. P. Yoder, Secretary. 



LIBRARY OF CONGRESS 

"<VEQ 

JUL 21 1921 

DOCUMENT,;, i.;Vi3ION 



LETTER OF SUBMITTAL. 



Federal Trade Commission, 

Washington, June 10, 1921. 

To the Speaker of the House of Representatives : 

Sir: Submitted herewith is a report on the increased prices of 
shoes in 1919 in response to a resolution of the House. 

The resolution directed an inquiry into the cost prices and selling 
prices of shoe manufacturers and retailers for the years 1918 and 
1919 and the cause of and necessity for the increase in prices. A 
proper analysis of the conditions required an inquiry into the leather 
industry also. 

During 1919 prices of shoes, leather, and hides increased more than 
in any year of the war period, 1914—1918. In 1920 a correspondingly 
rapid decline in prices of hides seems to have been accompanied by a 
somewhat less rapid and less extensive decline in leather prices and 
by a still smaller decline in retail prices of shoes. It should be 
noted that the present report as directed by the resolution covers 
principally the years 1918 and 1919, when prices were increasing, and 
that very different conditions existed in 1920, when prices were de- 
clining. 

SUPPLY AND DEMAND. 

While average imports of hides and skins in the fiscal years 1913 
and 1914, prior to the war, were 566,633,688 pounds, imports for the 
fiscal year 1918 were only 432,615,693 pounds and for the fiscal year 
1919 only 448,141,726 pounds. Since the greater part of the hides 
and skins tanned in the United States comes from foreign countries, 
these declines in imports in 1918 and 1919 represented an important 
decrease in available supply. At the same time there was an in- 
creased demand for hides and skins in 1919 in anticipation of large 
foreign and domestic orders for leather and shoes. Goatskins and 
calfskins in particular were accumulated in large quantities by tan- 
ners. Between February 28 and August 31, 1919, tanners' stocks of 
goatskins increased from 3,497,039 pieces to 19,636,459 pieces, while 
calf and kip stocks increased from 1,112,366 pieces on March 31 to 
2,505,396 on December 31, 1919. In spite of these increases in raw 
stocks tanners increased their leather production in 1919 only very 
slightly and not enough to offset increased leather exports, leaving 
a domestic supply inadequate to increases in domestic demand. Sim- 
ilarly, the supply of shoes in 1919 was inadequate to increases in 
domestic demand because of the fact that increases in production 
were slight and barely equaled increases in exports. That there 

52993—21 (3) 



was not only an unusually strong domestic demand for shoes in 1919, 
but also a marked shift in demand to the higher quality grades in 
spite of the great increase in price, is indicated in reports from the 
shoe trade. 

COSTS. 

Another important factor in the increase in prices was a general 
increase in costs of production. Wages, supplies, and general ex- 
penses increased at every stage of production and distribution. The 
most important factor, however, was the increase in cost of materials, 
namely, hides and skins for the tanning industry and leather for the 
shoe industry. In the tanning industry typical costs of sole leather 
production increased 5.7 per cent, from an average of 44.2 cents a 
pound in 1918 to 46.7 in 1919; of upper leathers 32 per cent, from 
35.7 cents a square foot in 1918 to 47.1 cents in 1919; and of kid 
leathers 20 per cent, from 33.4 cents a square foot in 1918 to 40.1 
cents in 1919. In the shoe manufacturing industry average increases 
in typical costs per pair in the fall of 1919 over the spring of 1918 
ranged between 18 per cent and 72 per cent for men's shoes, between 
19 per cent and 45 per cent for women's shoes, and between 7 per 
cent and 55 per cent for other shoes. In the wholesaling and re- 
tailing of shoes, while there were little or no increases in the per- 
centages of operating, expenses to cost price per pair of shoes sold, 
there were notable increases in cost prices to the dealer resulting 
from the increased selling prices of manufacturers. 

PRICES. 

With the short supply, increases in costs, and extremely active 
demand, there occurred a rapid advance in prices during 1919. 
Average prices of packer cattle hides on quotations in trade papers 
increased over 100 per cent, from 25 cents a pound in February to 
52 cents in August ; average price of calfskins increased 82 per cent, 
from $5.38 a skin in February to $9.81 in August; and average prices 
of goatskins increased 70 per cent, from 90 cents a pound in Feb- 
ruary to $1.53 in December. During the rise in hide prices leather 
prices were quick to reflect the increases, indicating that tanners 
were selling on a replacement basis. Prices of sole leather based 
on trade-paper quotations and tanners' reports increased 24 per cent, 
from 54 cents a pound in February to 67 cents in August; upper 
leather prices increased 105 per cent, from 41 cents a square foot in 
February to 84 cents in August; calf leather 95 per cent, from 56 
cents a square foot in February to $1.09 in August; and kid leather 
108 per cent, from 72 cents in February to $1.50 in September. While 
the peak in hide and leather prices came generally in the summer 
and fall of 1919, prices of shoes continued to increase until the spring 
of 1920. Average retail prices of a group of shoes selected as typical 
from those reported by retailers were $7.88 in 1918, $9.88 in 1919, 
and $12.75 in the spring of 1920, representing an increase of 25 per 
cent in 1919 over 1918 and of 29 per cent in 1920 over 1919. 

PROFITS. 

Incident to the high prices prevailing in 1918 and 1919 were large 
profits earned by tanners, shoe manufacturers, wholesalers, and re- 
tailers. Earnings of 89 tanners of shoe leather, whose production 



in 1918 was about 65 per cent of total production as reported to the 
Commission, were 13.1 per cent on investment (as represented by 
capital stock and surplus and borrowed money) in 1918, and 29.8 
per cent in 1919. Of these tanners the earnings of 22 companies tan- 
ning kid leathers, with production in 1918 about 70 per cent of the 
total reported kid leather production, were greatest, averaging 26.8 
per cent on investment in 1918 and 81 per cent in 1919. Earnings 
of 341 shoe manufacturers, with output in 1919 representing about 
62 per cent of the total output shown in the census of 1919, were 16.2 
per cent on investment in 1918 and 29.8 per cent in 1919. These large 
increases in earnings of tanners and shoe manufacturers were due 
primarily to the fact that their selling prices increased out of all 
proportion to the increases in their costs per unit of production, 
with a resultant enhancement of their margins of profit per unit. 
Earnings of 32 typical shoe wholesalers and jobbers averaged about 
22 per cent on investment in 1918 and about 31 per cent in 1919; 
earnings of 46 typical shoe retailers averaged about 25 per cent in 
1918 and about 32 per cent in 1919. These earnings, like those of 
tanners and shoe manufacturers, resulted from wide margins of 
profit taken on each shoe sold. The increased earnings in 1919 were 
due to the fact that selling prices increased by greater amounts and 
percentages than did costs. 



While the Commission has not undertaken a study of costs and 
profits in the year 1920 on the basis of an examination of books of 
account, the indications are that tanners generally incurred losses in 
1920, and that shoe manufacturers generally either incurred losses or 
made only small profits. This resulted from the rapid price declines 
in this year and the consequent heavy depreciation of inventory 
values. These declines seem to have been brought about principally 
by an abrupt and widespread decrease in domestic demand for shoes 
in the spring of 1920 attributable to the continued advance in shoe 
prices. At the same time there was a falling off in export demand 
for shoes and leather, due to shipping difficulties and unfavorable 
rates of exchange. The first effect of this slackened demand was a 
widespread cancellation by retailers of orders placed with shoe manu- 
facturers and the selling of shoes at reduced prices through clearance 
sales conducted by retailers, wholesalers, and manufacturers in the 
early summer. With the exception of these sales, however, the reduc- 
tion in retail prices of shoes during the remainder of 1920 was slight 
as compared with the marked declines in leather prices and the even 
heavier declines in prices of hides and skins. Tanners and shoe 
manufacturers responded to the situation by partial and, in some 
cases, total suspension of production. 

CONCLUSIONS. 

The high prices of shoes in 1918 and the great increase in those 
prices in 1919 appear to have been the result of abnormal conditions 
of supply and demand arising from the war, which were both 
economic and psychological. Incident to these conditions were large 
margins of profit taken by tanners, shoe manufacturers, wholesalers 



and jobbers, and retailers. The advance in prices was finally termi- 
nated by the so-called " buyers' strike " in the spring of 1920. The 
failure of leather prices and shoe prices to decline as extensively as 
did hide prices after the "buyers' strike" may be attributed (1) to 
the fact that other costs had not declined as much as had raw ma- 
terial costs, and (2) to an apparent tendency to base selling prices 
on actual rather than replacement costs — a policy inconsistent with 
that applied in 1919 while prices were advancing. In any event, 
even though tanners and shoe manufacturers earned smaller profits 
or sustained actual losses in 1920, due to changed conditions — which 
are not dealt with in this report, because the inquiry was closed with 
the end of 1919 — the present prices of hides and skins and the con- 
ditions existent in these phases of the industry justify an expecta- 
tion of still further declines in the quoted prices of leather and 
of shoes. 

Eespectfully, 

Huston Thompson, Chairman. 

Nelson B. Gaskill, 

John Garland Pollard. 

Victor Murdock. 

John F. Nugent. 



SUMMARY OF REPORT ON SHOE AND LEATHER 
COSTS AND PRICES. 



Inquiry into the increased prices of shoes was undertaken pursuant 
to House Besolution 217, Sixty-sixth Congress, first session. This 
resolution reads as follows: 

Resolved, That the Federal Trade Commission is hereby directed to inquire 
into the increase in the price of shoes, to ascertain the cause and necessity 
for the increase; to ascertain the manufacturers' cost price and selling price 
and the retailers' cost price and selling price for the years 1918 and 1919, and 
to report to the House at the earliest convenient date the result of the investi- 
gation. 

SCOPE, OF THE REPORT. 

Inasmuch as no conclusions regarding the cause of and necessity 
for increases in shoe prices could well be reached without an ex- 
amination also of conditions under which the principal raw materials 
were produced, the present inquiry has included (1) the price trends 
of hides, leather, and shoes from 1913 to 1921, with particular ref- 
erence to prices in the years 1918 and 1919 ; (2) production, consump- 
tion, and stocks of hides, leather, and shoes in 1918 and 1919; (3) 
costs and profits per unit of production and with respect to total busi- 
ness of tanners, shoe manufacturers, shoe wholesalers and jobbers, 
and shoe retailers during 1918 and 1919 ; and (4) general conditions 
in the hide, leather, and shoe industries. 

Most of the information upon which the costs and profits in this 
report are based has been obtained through schedules sent to 262 
tanners of shoe leather, 1,085 shoe manufacturers, and 133 shoe 
dealers (wholesale and retail). In addition, however, the books of 
26 shoe manufacturers have been examined by accountants of the 
Commission for data on the production costs of 259 types or grades 
of shoes, while data on production and stocks of leather have been ob- 
tained through additional schedules sent to 531 tanners. Other data, 
including information in regard to general conditions, have been ob- 
tained through interviews and from published sources. 

HIDE PRICES. 

Immediately upon the relinquishment of Government control of 
hide prices in January, 1919, prices of hides, leather, and shoes 
began an upward movement more rapid and extensive than any which 
had taken place during the war period, 1914-1918, culminating for 
hides and leather in the late summer and fall of 1919 and for shoes 
in the spring of 1920. In the period February to August, 1919, aver- 
age prices of packer cattle hides based on quotations in trade journals 
increased 105 per cent, from 25.42 cents per pound in February to 
52.09 cents in August ; prices of country hides increased 118 per cent, 

7 



8 

from 19.77 cents to 43.18 cents; and of calfskins 82 per cent, from 
$5.38 per skin to $9.81 per skin. Average prices of goatskins did not 
reach their peak until December, 1919, at which time they had in- 
creased 70 per cent above the February average from $0.90 per 
pound to $1.53 per pound. That these increases were in most in- 
stances greater than any which had occurred during the war period 
is shown by the fact that average prices of packer cattle hides were 
41 per cent above the 1913 average in January, 1919, and 192 per cent 
above in August, 1919 ; prices of calfskins were 113 per cent above the 
1913 average in January and 342 per cent above in August, 1919; 
and prices of goatskins were 106 per cent above the 1913 average in 
January and 258 per cent above in December, 1919. 

LEATHER PRICES. 

Increases in prices of leather were coincident with and, in the case 
of goat leather, anticipated the increases in hide prices. In the period 
from February to August, 1919, average prices of sole leathers, based 
on trade-paper quotations and tanners' reports, increased 24 per cent, 
from 54 cents a pound in February to 67 cents in August ; prices of 
side upper leathers 105 per cent, from 41 cents a square foot in 
February to 84 cents in August; and prices of calf leathers 95 per 
cent, from 56 cents a square foot to $1.09. Glazed-kid prices, as re- 
ported by a prominent tanner of the better grades, did not reach their 
peak until September, 1919, at which time they had increased 108 
per cent, from 72 cents a square foot in February to $1.50 in Septem- 
ber. That these increases were in several instances larger than the 
total increases during the war period is shown by the fact that average 
prices of side upper leathers were 64 per cent above the 1913 average 
in January, 1919, and 236 per cent above in August ; prices of calf 
leathers were 124 per cent above the 1913 average in January, 1919, 
and 336 per cent above in August; prices of glazed kid were 85 per 
cent above the 1913 average in January, 1919, and 285 per cent above 
in September. The smallest increase was that of sole-leather prices, 
which were 72 per cent above the 1913 average in January, 1919, and 
109 per cent above in August. 

SHOE PRICES. 

Although the peak of price advances for hides and leathers came 
in the late summer or fall of 1919, average prices of shoes continued 
to advance until the spring of 1920. In the period 1914-1919 
manufacturers' average prices for a group of shoes selected as 
typical increased 106 per cent, from $2.71 in 1914 to $5.58 in 1919, 
and by the spring of 1920 were $8.68, an increase of 220.3 per cent 
over the 1914 average. Retail prices on other selected shoes, as re- 
ported by retailers, increased 119.3 per cent, from $4.50 in 1914 to 
$9.88 in 1919, and by the spring of 1920 were $12.75, an increase of 
183.3 per cent over the 1914 average. 

During the first half of 1919, when prices of hides, leather, and 
shoes were all advancing, leather prices reflected increases in hide 
prices almost instantly, and in the case of glazed kid even advanced 
ahead of the raw -stock price. But when prices of hides and leather 



began to decline in the fall of 1919, leather prices declined more slowly 
than did hide and skin prices. Neither hide prices nor leather prices 
declined very extensively, however, until the break in shoe prices in 
the spring of 1920. Thereafter hide prices declined rapidly until by 
the end of 1920 they were below the 1913 average; leather prices 
showed important declines also, though these were considerably less 
rapid and extensive than those of hide prices. Eetail shoe prices 
lagged in the downward movement owing (it is alleged) to the un- 
willingness or inability of retailers to take their inventory losses and 
clear their shelves. 

PRODUCTION AND STOCKS OF HIDES. 

Since about one-half of the cattle hides and calfskins and nearly 
all the goatskins tanned in the United States come from foreign 
countries, the domestic hide and skin supply depends largely upon 
imports. In the period from January to September, 1919 (during 
which prices of hides and of leather made their greatest advances) , 
total imports of hides and skins increased 265 per cent, from 29,254,864 
pounds in January to 106,731,885 pounds in September, 1919. How- 
ever, since total hide and skin imports for the fiscal year 1919 
and also for the fiscal year 1918 were over 100,000,000 pounds less 
than the average imports in the fiscal years 1913 and 1914, and since 
the domestic demand was in all likelihood larger in 1919 than in 
1914, it is safe to assume that there was an actual shortage of hides 
and skins at the beginning of 1919, and that the increase in imports 
between January and September, like the increase in prices, was in 
large measure a result of this shortage. The situation was undoubt- 
edly aggravated by speculative purchases of hides and skins in antici- 
pation of large foreign and domestic orders for shoes and leather in 
1919. Purchases of goatskins and calfskins by tanners during 1919 
resulted in an increase of 462 per cent in their stocks of goatskins 
from February 28, 1919, to August 31, 1919, and of 125 per cent in 
their stocks of calfskins from March 31, 1919, to December 31, 1919. 
These increases would seem too large to represent merely replenish- 
ment of stocks depleted during the war. Nor can they be explained 
on the grounds that they were incident to an increased production of 
leather, for the increase in leather production shown for 1919 was 
very slight as compared with this increase in raw stocks. 

LEATHER PRODUCTION. 

Production of calf and kip leathers by companies reporting to 
the Commission was 121,325,488 square feet in 1917, 116,613,246 in 
1918, and 155,489,632 in 1919. Production of kid and goat leathers 
was 246,468,203 square feet in 1917, 210,289,887 in 1918, and 253,- 
134.038 in 1919. Total shoe-leather production (including sole- 
leather production reduced from pounds to feet by an estimated 
conversion ratio) for the 319 companies reporting to the Commis- 
sion was 1,345,713,521 square feet in 1917, 1,138,062,002 square feet 
in 1918, and 1,507,531,135 square feet in 1919. 

As long as hide prices were advancing, i. e., during a large part 
of 1919, and leather was being sold on the replacement basis of these 
advancing hide prices, this policy of the tanners of accumulating 



10 

hide stocks was evidently a profitable one. Their large purchases 
of hides and skins tended to force prices upward, while the delay in- 
volved in making the raw stock into leather enabled them to sell 
most of the leather sold in 1919 on a basis of much higher hide and 
skin prices. In addition, the increases in leather production in 
1919 were more than offset by increases in leather exports, with the 
result that there was a shortage of leather and a consequent further 
enhancement of leather prices. During 1919 exports of calf and kip 
leathers increased 33,879,501 square feet, while production increased 
38,876,386 square feet, leaving only a very slight balance to meet 
the increase in domestic demand. In the case of goat and kid 
leathers exports increased 80,042,959 square feet, while production 
increased only 42,844,151 square feet. 

Whether or no tanners could have increased their production more 
than they did, it is apparent that their policy of purchasing addi- 
tional raw stocks without a corresponding increase of leather pro- 
duction accentuated the advance in price of hides, leather, and 
shoes in 1919. That they would have had no difficulty in marketing 
more leather if they had produced it is shown by the fact that 
their stocks of shoe leather were declining in 1919. Total calf and 
kip leather stocks of 276 tanners reporting to the Commission de- 
clined from 24,461,025 square feet on December 31, 1918, to 12,963,- 
352 square feet on August 31, 1919. Total stocks of kid and goat 
leathers declined from 27,368,462 square feet on December 31, 1918, 
to 8,515,410 square feet on July 31, 1919. To a lesser extent stocks 
of sole, side upper, and sheep and lamb leathers declined also dur- 
ing the first six months of 1919. 

SHOE PRODUCTION. 

Total shoe production in 1919 indicated by a preliminary census 
statement was 329,528,900 pairs, as against 292,666,500 in 1914. 
Shoe production, as reported to the Commission by 559 companies, 
increased in 1919 over 1918, but this was accompanied by an almost 
equal increase in exports. Shoe production of these companies in 1917 
was 259,910,660 pairs; in 1918, 250,743,832 pairs; and m 1919; 259,- 
361,411 pairs. Shoe exports totaled 14,843,208 pairs in 1917, 13,197,020 
pairs in 1918, and 21,354,537 pairs in 1919. Thus, while exports in- 
creased 8,157,517 pairs from 1918 to 1919, production increased 
8,617,579 pairs. 

While the increase in shoe exports in 1919 was large enough to 
offset the increase in shoe production in that year, it fell far short 
of the anticipated volume of exports which apparently had been 
responsible in a large measure for accumulations of hides and specu- 
lation in leather. Although exports of shoes in 1919 were over 100 
per cent larger than those in 1913, they were only slightly larger than 
the 1916 exports, and were not, apparently, of sufficient volume to 
represent the demand that forced prices of hides, leather, and shoes 
to unprecedented levels during 1919. 

COSTS AND PROFITS — TANNERS. 

Returns from 89 tanners of shoe leathers, with production in 1918 
averaging about 65 per cent of total production, as reported to the 
Commission, indicate average earnings (before deduction of interest 



11 

or of income and excess profits taxes) of 13.1 per cent on total in- 
vestment (capital stock, surplus, and borrowed capital) in 1918 and 
29.8 per cent in 1919. Earnings of 32 companies tanning sole leathers 
averaged 9.7 per cent on investment in 1918 and 18.9 per cent in 
1919 ; earnings of 35 companies tanning upper leathers averaged 13 
per cent in 1918 and 23.8 per cent in 1919 ; while by far the largest 
earnings were those of 22 companies tanning kid leathers, which 
averaged 26.8 per cent on investment in 1918 and 81 per cent in 1919. 
The increases in the rates of earnings in 1919 over 1918 resulted 
from the fact that selling prices increased more than costs. For 
sole leathers the average total cost per pound increased 5.7 per cent, 
from 44.2 cents in 1918 to 46.7 cents in 1919, while the average sell- 
ing price increased 9.4 per cent, from 50.1 cents in 1918 to 54.8 cents 
in 1919, with the result that the average percentage of profit to cost 
of product sold increased from 13.3 per cent in 1918 to 17.3 per cent 
in 1919. For upper leathers (calf, kip, horse, and cattle) the average 
total cost per square foot increased 31.9 per cent, from 35.7 cents in 
1918 to 47.1 cents in 1919, while the average selling price increased 
34.1 per cent, from 41.9 cents in 1918 to 56.2 cents in 1919, with the 
result that the average percentage of profit to cost of product sold 
increased from 17.4 per cent in 1918 to 19.1 per cent in 1919. For 
kid leathers the average total cost per square foot increased 20 per 
cent, from 33.4 cents in 1918 to 40.1 cents in 1919, while the average 
selling price increased 38 per cent, from 40 cents in 1918 to 55.2 cents 
in 1919, with the result that the average percentage of profit to cost 
of product sold increased from 19.8 per cent in 1918 to 37.7 per cent 
in 1919. The fact that margins of profit per square foot on kid 
leathers were larger in 1918 and increased more in 1919 than those 
on any other leathers explains the very large rates of return on 
investment earned by tanners of kid leathers. The high selling 
prices which made these earnings possible were influenced in part, 
no doubt, by the policy of tanners in accumulating large stocks of 
goatskins in 1919 without appreciably increasing their output of 
goat leathers. 

SHOE MANUFACTURERS. 

Earnings (before deduction of interest or of income and excess- 
profits taxes) of 341 shoe manufacturers, with output in 1919 repre- 
senting about 62 per cent of the total output shown in the census of 
1919, averaged 16.2 per cent on investment (capital stock, surplus, 
and borrowings) in 1918 and 29.8 per cent in 1919. The increase in 
rate in 1919 resulted from the fact that selling prices increased more 
than did costs. Because of the diversity in grades, types, and prices 
of the shoes studied an estimated average cost and selling price for 
all shoes per pair is not practicable. However, individual returns 
have been grouped on a basis of cost prices in 1918, and the averages 
taken for these groups indicate that for typical men's shoes the 
average cost per pair increased between 18 per cent and 72 per cent 
in the fall of 1919 over the spring of 1918, while the average selling 
prices increased between 22 per cent and 79 per cent, with the result 
that average margins of profit increased between 50 per cent and 189 
per cent ; for women's shoes average increases in costs ranged between 
19 per cent and 45 per cent and in selling prices between 3 per cent 



12 

and 50 per cent, with the result that average margins of profit in- 
creased between 45 per cent and 192 per cent ; for other shoes average 
increases in costs were between 7 per cent and 55 per cent and in 
selling prices between 11 per cent and 61 per cent, with the result 
that average margins of profit increased between 45 per cent and 501 
per cent. 

Typifying these increases, the average cost per pair of 11 types of 
men's shoes was $4.28 in the spring of 1918 and $5.40 in the fall of 
1919; in the same period the average selling price of these shoes 
increased from $4.64 to $6.07, which meant that the average profit 
per pair increased 86 per cent, from 36 cents to 67 cents. Similarly, 
the average cost per pair of 9 types of women's shoes was $4.30 in 
the spring of 1918 and $5.48 in the fall of 1919, while in the same 
period the average selling price increased from $4.65 to $6.18, with 
the result that the average margin of profit increased 100 per cent, 
from 35 cents to 70 cents. Another indication that selling prices 
increased more than costs is the fact that total sales of the 341 
companies increased from 107.3 per cent of total cost of product sold 
in 1918 to 112.7 per cent in 1919. 

WHOLESALERS AND JOBBERS. 

Returns from 32 typical shoe wholesalers and jobbers indicate 
earnings (before deduction of interest or of income and excess profits 
taxes) of about 22 per cent on investment (capital stock, surplus, 
and borrowings) in 1918 and about 31 per cent in 1919. These earn- 
ings resulted from selling prices which gave wide gross margins over 
cost price on each shoe. The increase in earnings in 1919 was due to 
the fact that selling prices increased by larger amounts and per- 
centages than did cost prices, while there was little or no increase 
in the percentage of operating expense to cost price per shoe. In 
the spring of 1918 average gross margins of selling price over cost 
price for the various groups of men's shoes studied ranged from 

16.4 per cent of cost price to 24.3 per cent ; for women's shoes from 
13.1 per cent to 37.9 per cent; and for other shoes from 16.1 per 
cent to 26.1 per cent. In the fall of 1919 average gross margins for 
the groups of men's shoes ranged from 19.3 per cent of cost price 
to 23.6 per cent; for women's shoes from 11.4 per cent to 24.2 per 
cent; and for other shoes from 13.6 per cent to 29.4 per cent. In 
general the gross margins on the shoes studied seem to have averaged 
about 20 per cent of cost price during the period. That selling prices 
increased more than did cost prices is indicated by the fact that 
total sales of the 32 companies reporting increased from 119.5 per 
cent of total cost of merchandise sold in 1918 to 122.4 per cent in 1919. 
At the same time total operating expenses increased only very 
slightly, from 13.3 per cent of cost of merchandise sold in 1918 to 

13.5 per cent in 1919, with the result that the average percentage of 
profit earned on each shoe was larger in 1919 than in 1918. 

RETAILERS. 

Earnings (before deduction of interest or of income and excess 
profits taxes) of 46 typical shoe retailers amounted to about 25 per 
cent of total investment (capital stock, surplus, and borrowings) 



13 

in 1918 and about 32 per cent in 1919. These earnings, like those of 
wholesalers and jobbers, resulted from selling prices which gave 
large gross margins over cost price on each shoe sold. The increase 
in rate of return on investment in 1919 was due principally to the 
fact that the increase in selling prices was greater both in amount 
and in percentage than the increase in cost prices, while there was 
little or no increase in the percentage of operating expense to cost 
price per shoe. Average gross margins of selling price over cost 
price in the spring of 1918 for the various groups under which men's 
shoes were studied ranged from 37.7 per cent of cost price to 58.2 
per cent ; for women's shoes the averages ranged from 23.6 per cent 
of cost to 60 per cent ; and for other shoes from 32.4 per cent to 64 
per cent. In the fall of 1919 average gross margins for men's shoes 
ranged from 34.4 per cent of cost price to 59.6 per cent ; for women's 
shoes from 37.9 per cent to 56.8 per cent; and for other shoes from 
35.9 per cent to 53.5 per cent. In general, retailers' gross margins 
seem to have averaged about 45 per cent or 50 per cent of cost price 
for the period studied. That selling prices increased more than did 
cost prices is indicated by the fact that total sales for the 46 com- 
panies represented 145.5 per cent of total cost of merchandise sold 
in 1918 and 148.2 per cent in 1919. At the same time the percentage 
of operating expense to cost of merchandise sold increased only very 
slightly, from 36.5 per cent in 1918 to 36.9 per cent in 1919, with the 
result that the percentage of profit earned on each shoe sold was 
larger in 1919 than in 1918. 

In general it would seem that profits at each stage of shoe produc- 
tion and distribution were large in 1918 and increased in 1919. The 
size of and increase in these profits is attributable to the fact that 
supply and demand conditions resulted in selling prices for leather 
and shoes which gave large and increasing margins of profit over 
cost on each shoe sold. The excess of demand over supply which 
resulted in these selling prices came in part from economic condi- 
tions arising out of the war and in part (it would seem) from the 
post-war psychology of the consumer, who was apparently deter- 
mined to buy relatively better qualities than before and to believe 
that these qualities could only be had at very greatly increased prices. 

COLLAPSE OF MARKET IN 19 20. 

Although no detailed study of costs and profits in 1920 has been 
made, all the indications are that the sudden break in prices of hides, 
leather, and shoes which occurred in the spring of the } 7 ear and the 
uninterrupted decline in prices thereafter resulted in large 'inventory 
losses to many tanners and shoe manufacturers. The break in the 
market seems to have been brought about principally by an abrupt 
and widespread slackening of demand attributable to the continued 
advance in shoe prices. Another factor was the decline in export 
demand for shoes and leather due to shipping difficulties and un- 
favorable rates of exchange. The immediate effect of the slackened 
demand was a general cancellation by retailers of orders placed with 
shoe manufacturers and a rush to clear out existing stocks by means 
of clearance sales conducted by retailers, wholesalers, and manu- 
facturers in the earlv summer. Thereafter tanners and manufac- 



14 

turers seem to have responded to the situation by partial or even 
total suspension of production and by writing off inventory losses on 
finished stock. 

CONCENTRATION OF INDUSTRY. 

In the present inquiry no effort has been made to ascertain the ex- 
tent, if any, to which competitive conditions and price trends have 
been affected by the predominance of the five large meat-packing 
companies (known as the " Big Five ") in the hide industry, and 
also of these concerns together with two large independent leather 
companies — the Central Leather Co. and the American Hide & 
Leather Co. — in the leather industry. The importance of these com- 
panies, however, makes possible the exercise of a considerable measure 
of control over competition and prices. About 75 per cent of all the 
cattle, calves, and sheep killed by interstate slaughterers in the 
United States are killed by the " Big Five " packers. Data in the 
hands of the Commission indicate that in the period December 31, 
1918, to March 31, 1920, between 64 per cent and 96 per cent of the 
total raw stocks of hides and skins in the hands of packers on the 
last day of each month were held by the " Big Five." Since prices of 
county hides are influenced principally by the price of packer hides, 
the control of the domestic hide market which the " Big Five " are in 
a position to exercise is apparent. These same concerns are also im- 
portant factors in the production of hides in foreign countries from 
which hides are imported into the United States. In addition four of 
these packers are engaged through subsidiaries or affiliated companies 
in the tanning of leather, and in 1919 produced about 23 per cent of 
the total sole-leather production and about 7 per cent of other shoe- 
leather production. In the same year the two large independent 
tanners — the Central Leather Co. and the American Hide & Leather 
Co. — tanned about 32 per cent of the total sole-leather production 
and about 6 per cent of the total of other shoe leathers produced. 
One of these two independents is also influential in the country hide 
business. 

SELLING METHODS. 

Selling methods employed in the country hide business and also in 
the tanning business appear to be in some features prejudicial to the 
best interests of the business and of the public. The price differential 
in favor of packer hides over country hides is attributable in some 
measure to the number of dealers and brokers through whose hands 
the country hides must pass in going from the farmer to the tanner. 
Also the system of selling country hides in ungraded lots deprives the 
farmer of adequate incentive to the exercise of due care in the taking 
off of hides, and so taxes the careful farmer in favor of the careless 
one. 

The present practice of many shoe manufacturers of buying leather 
for immediate delivery, and therefore at spot prices, forces the tanner 
to quote leather prices on the basis of the replacement cost for hides, 
which involves a speculative factor in his business. If the shoe 
manufacturer would place his order several months ahead of delivery 
date, the tanner could quote his leather prices on the actual hide 
market and avoid this speculative risk. Since the shoe manufacturer 



15 

markets his goods on the basis of orders booked in advance of pro- 
duction, he would assume no risk in purchasing his leather on the 
same plan. 

It is expected that much of the uncertainty regarding leather 
supply and demand which gives rise to or enables speculation will be 
obviated by the recently enacted Kreider law directing a monthly 
Federal census of leather sales and of stocks of hides and leather on 
hand. This law became operative in June, 1920. 

INFLUENCE OF STYLE ON PRICES. 

In the shoe industry multiplicity of styles and of changes in styles 
appear to operate against the best interests of the manufacturer, dis- 
tributor, and consumer alike. From the multiplicity of styles comes 
a burden of additional cost, which begins with the manufacturer and 
accumulates with each process until the consumer is reached. For 
the manufacturer there is an added cost for materials, labor, and over- 
head, with the additional factor of increased prices for the leather 
which a particular style brings into vogue. For the retailer there 
are further increases in cost due to uncertainty as regards the popu- 
larity or duration of the style. Because of this uncertainty the retailer 
is obliged to add to his selling price enough to cover himself against 
possible losses resulting from stocks of shoes left on hand when a 
style changes or proves unpopular. Qften, too, the margin on staple 
shoes is also increased to cover possible losses on fancy shoes, with the 
result that the general public is taxed to the benefit of fashion buyers. 
In addition there is evidence that the style demand may be manipu- 
lated to the detriment of the public. During the " buyers' strike " in 
1920 vigorous efforts were made by certain elements of the shoe in- 
dustry to bring about changes in styles with the object of forcing the 
public to buy shoes by " legislating " current styles out of vogue. 

Without discounting the genuine demand for styles on the part of 
the public and their contribution to the excellence of the American 
shoe to-day. it is felt that they are open to abuse and have added a 
serious burden of cost to the consumer. There are so many and such 
delicate economic balances involved in the question of style that any 
attempts at regulation would be futile and dangerous, but it would 
seem that the shoe trade would benefit as much as the consumer by 
action through the various trade organizations toward the expression 
of styles more through diversity of and variations in materials used 
than through multiplicity of patterns, lasts, or colors, thus eliminat- 
ing the most expensive elements of style and at the same time obviat- 
ing excessive demand for any one material. 

o 



Gaylord Bros. 

Makers 

Syracuse, N. Y. 

PAT. JAN. 21,1908 



